Category Archives: Economics

Tick Tock

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One of the more irritating aspects of living in a land run by a religious cult is that reality is forced into the official narrative. That which cannot fit is not just ignored, it is rejected and often ferociously. Prior to the 2012 election, as an example, the media refused to cover the erosion of the American middle class. If anyone mentioned anything about the stagnant economy they were greeted by a press wielding pitchforks and torches chanting “burn the witch!” The fact that it persists after the hero has been re-elected is more troubling.

It suggests these nuts really believe their own bullshit.

Here’s an example. China’s economy is slowing and very well may be in recession. The official number for there are always inflated or plain wrong so assuming the worst case is wise. Nitwits like Thomas Friedman will have to explain why their preferred brand of authoritarianism is suddenly not working. More important, the world will have to find a new champion to save this Potemkin world economy. Most important, we will now have to start wondering what happens to the ChiComs when their Ponzi scheme unravels. A billion pissed off Chinamen can make a helluva mess.

Then we have the on-going saga of Europe. Portugal is in trouble. We’ve seen this film and know how it ends. The main political parties suddenly join together to force through unpopular polices. They put on a show for a while, but in the end, they are simply the faces of the ruling elite. They will close ranks to defend their privileges. They force through the cuts and taxes to get the bailout. The policy fails and the people suffer. Eventually, the fringe parties start looking less fringe and the economic crisis moves to a political crisis.

In Greece, they are afraid to hold another election for fear of the communists. In Italy they fear the populists. Reality is that thing that does not go away when you stop believing in it and the reality looming over everything right now is the inherent defects of credit money and the economy built on it. Our leaders have built this amazing house of cards out of credit money. It is just a matter of time before it begins to collapse.

Death of Cable

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One of the things I think will be very interesting to watch over the next decade is the breakup of the cable monopolies. By that I mean the end of forced subsidies through the cable bill. I doubt we ever see multiple cable outfits servicing the same area. What we wil see in most areas is at least one satellite operator, a cable provider, a fiber company and a wireless company offering combinations of voice and data. TV will be offered as a part of the data package as just another internet service. Consumers will shop the providers based on their needs. Metered service will become common.

As is always the case, some areas will have several choices, while others have one or two options. A big city like New York will not have DirecTV, but Boise Idaho will not have fiber or cellular. More important, the content  will be unbundled from the pipe. Instead of paying Comcast $120 a month for TV and Internet, you will pay Comcast $50 a month and buy the content you  want from a broker or the originator.

The content providers are fighting this hammer and tong. The reason is they are currently making hundreds of billions from people who don’t want their product. Take a look at ESPN. They make $9 billion a year in revenue. Two thirds of that is from subscriber fees. Most estimates say that roughly 20% of households watch ESPN. Yet, 100% pay $8/mo to ESPN as it is part of the basic cable package. As soon as those folks get the chance to cut their bill by $70 a year, they will take it.  This Atlantic story goes into the details.

Of course, those billions coming out of cable bills into the channel operators like ESPN, Yes, NESN and FoxSportsNet will force them to change their business models. They will recoup some through other means like higher fees, but most of it will come through downsizing. Part of it means lower fees content suppliers, like sports leagues and syndication companies. It also means smaller players will have great access to customer and thus create alternative media. Live streaming will be the next big thing.

Detroit

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The chattering skulls will certainly be talking about Detroit, specifically about the bankruptcy filing. It is the largest municipal bankruptcy in our history. More important, it is viewed as a preview of coming attractions. Roughly half the states and hundreds of localities are technically insolvent. The money they raise through direct taxation is insufficient to cover their operating expenses. They get by through borrowing and transfers. Without state subsidies, for example, Baltimore would be bankrupt.

Kevin Williamson has a column up on it today. He dances around the elephant in the room, of course, but he does allude to it. What’s wrong with Detroit is it is full of blacks. The culture of corruption runs from the top all the way down to the bottom. This is not just a math problem. It is a moral problem. Detroit did not suddenly become corrupt. It started after the riots of the late 60’s. A city that was majority white became 80% black in 15 years. The whites fled taking their money, taxes and expertise with them.

On the numbers side,  Karl Denninger has a post up on the math of the problem. Detroit owes $9 billion to health and pension funds. That number will keep going up every day as current workers accumulate benefits. That’s $10,000 for every man, woman and child currently in the city. Throw in the secured credit, net out those unable to work and it is not hard to see the problem. The city owes more than it can ever possibly pay, probably by a factor of three – at best. Everyone the city owes should expect thirty cents on the dollar.

Karl makes a larger point, one that will be with us for a long time. One generation cannot promise itself future money from the pockets of the next generation. It is an unenforceable contract between generations. The reason is you cannot force people to execute their contractual obligations, no matter how they entered into the contract. Even slavers understood this. The people living in Detroit today are unable and unwilling to pay the debts created by previous generations, so those debts will not be paid.

The same is true across the country where government has racked over $54 trillion in pension and health promises. That’s $180,000 for every person in the country. By comparison, Detroit looks great. There’s simply no way all of those promises can be met, especially with the demographics of the country changing. Will newly arrived foreigners agree to pay your pension payments? The answer is not just “no” it is “hell no.”

Again, we see the same old pattern as we see with all of our nation’s maladies. The seed was planted in the 1960’s. The generation that won the fight against fascism, threw in the towel twenty years later to make their kids happy. The selfish, resentful brats we call Boomers have rampaged through American culture like locusts, destroying everything in their path. In old age, they will be demanding the rest of us live in poverty so they can have cushy pensions and health plans.